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Educational Policy, Economic Literacy, and Inside HigherEd

We’re facing the most dire economic situation in our nation’s history, but that doesn’t prevent Inside HigherEd from printing the most uninformed analyses of the current situation. Here’s a sample. Commenting on a recent letter from 51 “presidents, chancellors, regents, and heads of university associations” asking that portions of the stimulus be spent on shovel-ready highered infrastrcuture projects, educational policy analyst Jane Shaw comments:

Why did these educators choose capital funding — that is, constructing “essential classroom and research buildings and equipping them with the latest technologies”? Wouldn’t tuition discounts, tax credits, more scholarships, or even faculty salaries be more directly related to the problems that they decry?

This is a question she could have easily answered by cracking an Econ 101 book, but I’ll let economist Paul Krugman, who knows a thing or two about depression economics, explain it here:

Let’s lay out the basics here. Other things equal, public investment is a much better way to provide economic stimulus than tax cuts, for two reasons. First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.

That said, there’s a problem with a public-investment-only stimulus plan, namely timing. We need stimulus fast, and there’s a limited supply of “shovel-ready” projects that can be started soon enough to deliver an economic boost any time soon. You can bulk up stimulus through other forms of spending, mainly aid to Americans in distress — unemployment benefits, food stamps, etc.. And you can also provide aid to state and local governments so that they don’t have to cut spending — avoiding anti-stimulus is a fast way to achieve net stimulus. But everything I’ve heard says that even with all these things it’s hard to come up with enough spending to provide all the aid the economy needs in 2009.

In other words, it’s pretty simple — the signatories proposed shovel-ready infrastructure projects because that’s what’s needed to save the economy. Shaw’s suggestions may be good ideas, but they are poor stimulus. Higher faculty salaries don’t translate necessarily into jobs, tax credits don’t tap into unutilized productivity, and as much as tuition discounts may be needed, it’s not clear that they put a single person to work or increase demand in the slightest. Does a person with a tuition discount buy more education?

But the errors in the Inside HigherEd article don’t end there. Shaw also says later:

By asking the taxpayers to rev up those projects, the administrators are essentially saying that if state taxpayers can’t afford a project, some mythical “federal taxpayer” can.

But state and federal taxpayers are, by and large, the same people. If Arizona is seeing its tax revenues dip, chances are that the federal government will see its taxes go down, too. If the people of Arizona are hurting, probably taxpayers countrywide are hurting, too.

This is just a ridiculous level of analysis. The difference between states and the federal goverment is that the federal government can print money and states can’t. You can argue about the dangers of essentially borrowing against the future, but the point of stimulus is to avoid the larger government cost of economic collapse by injecting enough capital into the economy to prevent it. States have some capacity to borrow, but in a skittish, frozen economy that capacity totals a couple drops in several buckets. To equate the economics of state budgets with the economics of the federal budget is dangerously uninformed.

Let me be clear — certainly there are economists that have different opinions about the relative worth of stimulus in preventing (or softening) depressions. In the face of overwhelming evidence that monetary policy alone can’t save us, they’re getting fewer, but there are still people that have legitimate disagreements with the Keynesian principles behind government stimulus.

But that’s not what the article in Inside HigherEd is disputing. It is, in fact, taking the stimulus as a given. It is arguing the relative worth of the contents of a stimulus package. And yet the author does not seem to understand what a stimulus package is supposed to do, or how it is expected to do it.

We’re on the brink of the biggest economic disaster in our nation’s history, and right now the biggest risk to our economy is that 28 years of public sphere claptrap about how national economic policy is essentially no different than a family budget is preventing us from implementing the dramatic remedies that are really our only hope of avoiding complete collapse. Publications like Inside HigherEd should be doing their best to raise the level of dialogue on these issues, not dragging it back down into ignorance.